Spanish Property Bubble
May - 05 | 
29 comments. | 
Overseas Property News, Spanish Property
Definition: A property bubble is characterised by rapid increases in property prices until they reach unsustainable levels relative to incomes, other economic factors followed by a rapid decrease in prices resulting in negative equity (mortgage debt is higher than the value of the property itself). It means many people are priced out of the market and real estate prices either have to drop to get the market moving or incomes need to increase to afford the high prices.
So is this the case in Spain?
Mark Stucklin of Spanish Property Insight has written very comprehensive information regarding this matter. Here is a quick synopsis:
After running a poll on their website, Spanish Property Insight obtained the following results from property buyers (71% of which are British, 11% Spanish, 6% Irish, 12% other) showing that foreigners are more divided on this question, with 57% saying there is a bubble, and 43% saying there isn’t. When Spanish votes are included, the figures are 61% saying there is a bubble and 39% saying there isn’t, almost the same as the British vote when isolated from other nationalities. To demonstrate their discontentment with state of Spanish property prices, on May 14th, young Spanish people are planning a mass sit-down demonstrating against the high level of property prices as reported by Euro Weekly News.
Have your say in our poll below:
[poll=1]
It appears that the consensus is that a bubble does exist, but on what grounds?
Prices of Spanish property prices have risen to record levels since 2000, it became the must have of the last few years and many investors/home buyers have bought in Spain, with large concentrations of buyers in the coastal areas of the Costa del Sol and the Costa Blanca. Many investors have bought with the expectation that property prices would keep going up enough for them to sell up and make a healthy profit. The reality at present is that this isn’t possible in many cases, with many reports of property prices falling on the Costa del Sol and parts of the Costa Blanca. As the market is so slow, owners who need to sell are reducing prices to attract buyer interest. However remember that not all parts of Spain are in this scenario, the less popular areas of Costa de la Luz, Costa Tropical and Costa Dorada are still seeing good growth.
Factors for popularity of Property in Spain:
Low real interest rates
Spanish mortgage market has opened up
Incomes have been rising
Changing demographics and lifestyles
Foreigners buying in Spain
Property is a good investment
Travel time from most of Europe is short
Fashionable to have a second home
The Overseas Property industry in recent time is now a growing global market with investors and homebuyer shifting their buying power to new emerging markets, the likes of Dubai, Bulgaria, Morocco and Cape Verde. This has had a knock on effect as the pool of people buying in Spain has shrunk. This is evident in the commercial marketplace as many Spanish Property companies have expanded to sell in many hot property markets all over the world!
My thoughts…
It has been reported that the Spanish Government has proposed that non-resident capital gains tax will be slashed from 35 per cent to 18 per cent as of January 1, 2007. This is not set in stone yet, as it hasn’t been passed as law, but it is expected. The property selling costs in Spain have always been high and have led to a black economy in second hand property and are helping the stagnating market Spain has at present in its most expensive areas. So is the government’s trying to soften the bump for the Spanish Property market?
Over time I believe that owners in Spain will see good returns on their investments, but people have to be realistic, a property in Spain is not for Christmas, it is a longer-term investment.
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Housing Bubbles are a hot topic all over the world. Will they burst, what does that mean for me etc…. As each market becomes intertwined into the global economy, a change in the US can affect the Spanish market for example. I have gathered some references below that discuss other reasons for property bubbles (US biased):
http://housingpanic.blogspot.com/
http://overvalued.blogspot.com/
http://crash2006.blogspot.com/
http://economicrot.blogspot.com/
http://www.economist.com/finance/displayStory.cfm?story_id=4079027
http://www.businessweek.com/bwdaily/dnflash/jun2005/nf20050622_9404_db008.htm
Property prices don´t pop like a bubble, rather slowly melt over time. In some areas and some segments especially, at much faster rates. I would say that everything experienced along Spains coastal resorts will be mirrored throughout the other areas of Europe, Asia and America that have coastal resort areas that are currently being marketed to an international audience.
Spain and particularly areas such as Marbella, Elviria, Estepona, Altea, Denia, etc, are going to weather the best over the long term as they are the longest established and have had wealthy community of expats for many years. New build areas that have undergone the frenzy such as Torrevieja are in for the worst of the prices decreases when they eventually happen.
What concerns me most is the Spanish economies focus on the construction sector. It seems to me that all Spaniards do is build houses or work in the tourist sector. This is very worrying if there is a collapse in each.
Having said that if I was approaching retirement and i was looking to buy a holiday home the Costa del Sol would still be the top of my list for many obvious reasons.
Great post about the impacts of localized bubbles and how globalization is driving folks to different parts of the world.
Ben,
I agree with your point about the Spanish economy. Jobs in the coastal areas if Spain consist of property or property related services, service industries and tourism. When you knock down the first one, it will affect the other two.
North Spain is a lot more industrious and Madrid and Barcelona are in their own bubbles..
Tony – Thanks for your comment, the world really is getting smaller.
I have been hearing so much about this housing boom bubble and how it will burst. I will tell you one thing that I have sure noticed. A lot of people are getting thier real estate licenses. Our website helps future realtors realize their career goals and I tell you we have helped a lot of these people lately. I am not sure if this will affect supply or demand having so many “middle men” selling but it sure is a sign that real estate is hot. I hope it stays that way.
Great blog about globalisation of differenr parts of the world ………..
This is part of spain ……… if you know about Indian Real Estate then its very nice to hear from you!!! Our site really helps you in attaining some level in real estate fundamentals………
Dear sir
I am only speaking from fact, I know of a lot of people that are trying to sell in mainland spain for a number of factors.
1. the over development ( they can´t sell )
2. the weather to seasonal not like the canaries all year round weather they would now prefer to buy there. ( I don´t blame them we did )
3. crime not under control ( east european influence )
4 can some one tell me how did people manage to take charge of their property that was built on rustic land, and got it through the notaria system ( puzzling that )
To answer question no. 4 of Peters post.
In short corruption and greed on both sides of the buying equation. Owners who wanted cheap land were prepared to take the risk combined with corruption at all levels in the state.
Read this post http://www.brightsl.com/Weblog/archives/2006/02/post_3.html#more
To Peter
What do you mean about “crime not under control ” ??
What kind of crime you think not under control?
I would disagree with the point that “house prices don’t pop like a bubble”, in 1997 the Hong Kong housing market collapsed, loosing 50% of its value in only six months (the economist recently published that the market is still -43% below its 1997 value). A similar decline occurred in much of Asia’s previously booming housing market.
Examining the Spanish market, the increase in the economic growth and other points made have not been the only contributors to the speculation. In 2001, the conversion to the Euro forced those holding ‘black’ (undeclared) money to have to launder it, the principle outlet for the laundering being the housing market. In 2000, the Canary Islands regional government created La Reserva para Inversiones en Canarias (RIC), basically allowing companies to avoid paying taxes if they reinvested the money in their company. However, a loophole allowed companies to invest in the property market, thus further fueling the boom.
Now, the possible outcomes; 2006 is the first year that owners will be allowed to sell these ‘RIC investments without incurring penalties. 2007 will see the first decrease in monies from Brussels, money that has fueled the construction since the 90’s. Interest rates have been there lowest in history, the last year has seen the first increases from Brussels, and if it where not for the sluggish economies of Germany and France then these increases would surely have been greater to help cool the Spanish inflation.
Spain’s bubble is not about to go flat. For foreign investements there are still many excellent deals & for Spanish nationals bank have solved the issue of mortage with loans on 50 years. 10 years ago, this would have been impossible to even think about, but since rental is not a way of thinking in Spanish culture, so the 50 years is going full speed.
I just bought second hand in spain and you do not offer asking price i offered 10% less and secured the sale, if the bubble blows I have 10% to play with and I also bought in a good area which will not be effected as much if there is drop in prices.
stevo
Thanks for the comment, sounds like a good strategy Stevo.
What for you constituted a good area?
Are you looking for a capital gain or rental yield?
Unfortunately Spain has experienced what you are calling a Bubble, this is true is certain areas, Costas del Sol and Blanca. However all markets have cycles and this will adjust itself and continue to be a strong destination in years to come, you just aren´t going to double your investment like before and lets face it you have to spread your bets to win. I live on the Costa Cálida sandwiched between the other costas that are experiencing this peak, our property prices are significantly lower and by comparison to the UK market could be considered as extremly affordable second homes, even the Russians and Chinese are showing interest in Murcia. The area is not over built infact it has only recently seen new development in the last 5 years as it was not caught up with the mass redevelopment of the other costas years ago. The region of Murcia only has 2.5 million residents and its a large area. Take a look at Puerto de Mazarrón and it´s surrounding areas, you´ll be surprised at the height restrictions to maintain the natural beauty of the area and it´s unspoilt 35km of coastline and mountain backdrop. With a new international airport coming for 2010 this area is going to produce a real investment opportunity in an established foreign property market, which has to be less of a gamble than the emerging markets of Bulgaria, Romania etc that have yet to prove themselves. Don´t be fooled by the cheapest property out there, it isn´t necessarily going to increase 2 or even 3 fold that the emerging markets are promising… Are you rushing to visit these emerging markets to holiday? Who´s going to use all of those properties?
Certainly all true of mainland Spain, some aspects are different to the islands though.
Property prices seem to have risen in spain but you can still get a much better deal there than you can in the UK. Although it is a bit of a worry where some ex-pats have lost their home due to the builder did not have the correction planning permission
I agree with another poster about the increasing number of people getting their real estate license right now. Specifically I can attest to the increase in Spanish speaking people getting licensed in California where our company offers a Spanish language real estate exam preparation program. Interest in that program is going up each month.
It seems with every walk of life it is cyclical. For lovely houses with little planning issues, well apart from being hard to get planning
the Baleares is a great place to live.
“Housing Bubbles “are all time hot topic in all over the world. I know that people do not agree but mostly this sort of thing ever done to made good profit in long run. Most of the time the broker create fake demand to increase the price about a particular area and people start buying land or property and many of them invest to make good profit from future purchasers.
Though this housing boom bubble goes high instantly but at a certain point it has to burst. The Reason being each salesman requires for a purchaser, if the bubble goes higher it will push real purchaser back. At that time prices has to come back at that level that suits a medium class buyer.
Market prices in Galicia.
It seems to me that a lot of you have never heard of Galicia (Northwest Spain). I have lived here for thirtysix years and have seen bubbles come and go. I want to leave the following post:
We have seen that throughout the rest of Spain prices have plummeted over the last months with a glut of properties coming on the market. This has not been the case in Galicia where new builds have gone up in price over 3% this last year. As far as rustic and rural properties are concerned (which are my speciality) I am seeing some exceptional bargains coming on the market but basically because the sellers are short of cash. Older properties are only going down in price slowly. We have a lower volume of house sales generally but this is largely due to the parity pound/euro. What I have seen is that the market has changed; the people who came before looking for properties around 150,000€ with a mortgage are not coming anymore, those who have around 30-60,000€ in cash are still coming and appear to be more in earnest than before.
People with higher budgets don’t seem to be affected by either the money parity nor the credit squeeze. So the market has become fragmented into basically two price brackets.
Ja , es hat sich gelohnt solange zu warten um sich eine Immobilie an der Costa Dorada zu kaufen, ich werde weiter warten.
Es sind die gleichen Ganoven wie die Fondmanager , in den eigenen Beutel das meiste reinstecken, mit schlechter bis mittelmässiger Bauqualität, die Blase steigen lassen.
Sie ist geplatzt mit der allgemeinen Weltwirtschaftskrise,
sitzen die Banken in Spanien auf jede Menger zu teuer Immobilien, das Schicksal der Hypo Real Estate im Nacken , wird man die Immobilien wie in Amerika zu mehr als die Hälfte Nachlass schnell an den Mann bringen wollen.
Also abwarten ist die Devise.
Dann wird man endlich Immobilien zum realen Preis kaufen können.
Hey I’m new and I guess this is as good a place as any to see if anyone knows of a good loss mitigation training course?
I keep hearing about people making tons of money becoming foreclosure consultants.
So, If you have any info or you have purchased a good course, please share. I’m retired and looking for a home based business that I can earn a decent income with.
Thanks,
I totally agree with you
Well it is now 2010. we are seeing gradual improvemets in the numbers of interested buyers in Moraira and the Jalon Valley.Interest rates are low and sellers for the most part are more reasitic in the prices they are looking for. Not a recovery but market conditions that we can cope with.
It does not surprise me the amount of british people who are buying property in spain but what i do know is, british people are now being more careful when it comes to buying property in spain after the recent problems where they found they did not even own the property.
Hi very nice infomation and thanks to share this useful information